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We do not want to lose hospice for our dad if his sister's daughter moves in to care for her and she is an lpn and paid as care giver for her mom.

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tsherland, so sorry to read that your Dad is on Hospice Care.

Hospice doesn't mind who is the caregiver in the household, be it for your Dad and/or your Dad's sister. It can be anyone who is capable of doing the work. The household would need someone who can understand how to give pain medicine to your Dad, unless Hospice comes in daily to do that. If the niece, who is a LPN, can do it, that would be great.

I re-read your post, is your Dad on Medicaid by chance? Is that the reason why you asked about the paid caregiver? If it is only your Dad on Medicaid that shouldn't change his status. But if his Sister or both is on Medicaid, who would be paying for the full-time caregiver? I would double-check with Medicaid.

Now, I worry about the niece because if she needs to care not only for her mother, she would be expected to care for your Dad. Hospice isn't full-time, they come maybe once a day for a half hour or do depending the assignment for that day. Thus the niece will be caring 168 hours a week for two people, but only being paid 40. Many States require a paid caregiver to be given overtime pay for anything over 40 hours.

Oh, if your Dad and his sister live in a house and either one owns the house, the homeowner's insurance would need a workman's comp rider in case the caregiver gets hurt at home. This is something that is needed if one hires an employee, unless the niece works for a licensed caregiver Agency, the Agency has their own workman's comp.
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Ok, the person with dementia cannot be the caregiver at any time. Hospice requires a competent caregiver be there 24/7. That's more than one person can handle. They need to sleep at night.
You did not say who will pay for the LPN. If the parents are not on Medicaid, they will have to pay her from their own funds. She deserves to be paid the prevailing wage for an LPN with a written contract.
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